What consequence can result from failure to manage accounts receivable effectively?

The most significant consequence of failing to manage accounts receivable effectively is the higher risk of bad debts and cash flow problems. When accounts receivable are not monitored and managed properly, businesses may struggle to collect payments on time from customers. This delay in receiving cash can lead to cash flow issues, making it difficult for the company to meet its own financial obligations, such as paying suppliers, employees, or operating expenses. Additionally, an ineffective accounts receivable management system can result in an accumulation of unpaid invoices, which increases the likelihood that those debts will become uncollectible.

Moreover, when companies face cash flow problems due to poor management of their receivables, it may limit their ability to invest in opportunities, pay down debt, or sustain their operations, ultimately impacting their long-term viability. Therefore, effective accounts receivable management is crucial for maintaining a healthy cash flow and minimizing the risk of encountering bad debts.